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Addressing the 'D' Word
Chris McWilton | February 16, 2011
(From MasterCard's "The Heart of Commerce" Blog)
Included in the Dodd-Frank Act last year, the flawed Durbin Amendment represents government-instituted price fixing of debit interchange – the fees that merchants incur for the convenience and protection of accepting debit cards.
Currently proposed regulations cap these fees at a fraction of their previous level. If enacted, the result is more than $14 billion tax on consumers each year, upsetting the previously well-balanced, self-regulated payments system and drastically reducing revenue for the issuing community.
With this lost revenue, banks will need to balance their books and will be forced to consider increased fees for consumers or reduced access to banking benefits and services. At the same time, the Durbin Amendment does not require merchants to pass their newfound savings onto consumers.
Look no further than recent media stories for proof on how “Durbin Fees” might play out for bank customers.
This Amendment was passed in an unprecedented process without any Congressional review or vote in the House. Since then, these price controls have been publicly condemned by both Democrats and Republicans for delivering little to benefit consumers – and in fact may actually result in significant harm. Changes of this magnitude should not be imposed without serious thought, analysis and study of the long-term consequences to the financial system and the larger US economy.
The Durbin Amendment will no doubt have an unintended, negative impact on the millions of Americans who rely on them as a core payment tool for their daily financial management needs. Take the example of a working family who uses their credit union debit card to purchase groceries, buy gas and pay bills. Once banks are forced into raising fees, this family will be required to pay for their checking account and other services that were previously free. If the family can’t afford these increased costs, they’ll l be pushed out of the banking system.
Consumers have demonstrated a resounding affinity for debit cards as a critical component of their personal financial management. Does government really want to take this choice out of Americans’ hands?
Tomorrow’s Congressional hearing is one step. It’s important that voters express their concern and let their congressional representatives know that these unintended consequences cannot be tolerated.
Chris McWilton
President, U.S. Markets
MasterCard Worldwide
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Chris McWilton is making the case that virtually everyone in the payments industry understands. In my view another negative affect of this harmful regulation is that it will actually cause some consumers who use debit cards as a spending/budget discipline to turn back to credit cards. Ultimately, many of them will have credit problems.
Posted by Peter Williamson , 21/02/2011 9:38am (1 year ago)
Don't think we'll see it revoked, perhaps modified a bit, and I agree banks will pass costs on to consumers while merchants will keep reduced cost to improve their P&Ls.
But this is just another change to the environment, like changed consumer behavior or, reaching way back, Reg E. We as business people are paid to work with changes, but the last 20 years (most of our careers) were boom times in consumer payments and many of us in incumbent businesses (issuers, networks) haven't confronted today's kind of changes are railing against them rather than figuring out how to work with them.
This opens the door to new players, and that's what is making our business more interesting now than is has been in a long time.
Posted by David True, 18/02/2011 9:27am (1 year ago)
And I would argue that he's correct in that assessment, as well as in his other conclusions in the full statement. The unintended consequences of the Durbin Amendment may well be very significant, especially for the U.S. consumer.
Per the latest FRB Retail Payments Study, debit cards, including prepaid, represent the fastest growing payment vehicle in the U.S. payments system. In fact, with the exception of the ACH Network, it's the only payment vehicle that is showing growth. Both check and credit card declined in the latest study. And now Durbin is going to fix interchange at an artificially low level (one that is arguably below actual costs) to "protect" merchants.
At the end of the day, it's the consumers who will end up paying in one form or another. Let's just hope that cooler heads prevail in D.C. and Durbin is revoked before it has the opportunity to wreak havoc on debit cards.
Posted by Mark Webster, 18/02/2011 9:27am (1 year ago)
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